In the Bid to Regulate Crytocurrency, it’s the US of A versus the World

By | August 17, 2017

Battlelines are being drawn

A number of news stories last week shows the US government is gearing up to be the sheriff in the Wild West world of cryptocurrency:

  1. Bitfinex no longer accepting US customers and is exiting the US retail marketplace.
  2. The SEC cracking down on public companies that want to issue digital coins.
  3. US President Donald Trump signed a new foreign sanctions bills for other countries to monitor cryptocurrency in a bid an effort to combat terrorism.

Let’s talk about #3 first, as at first glance it looks important but may have the least impact of the three:

It’s a government bill that requires OTHER governments to come up with a “national security strategy” to crack down on naughty cryptocurrency transactions.

Both Coinivore and ZeroHedge are harrumphing that the US government is “just trying to impose its will upon other governments.”

However my take is: Good luck with that. The piece of legislation looks to be crafted by people, at best, who don’t quite understand the nuances of  what they are talking about. That means techies on both of the trenches won’t take this seriously anytime soon.

Bitfinex, in it’s long-running battle with US regulators has finally given up and begun the process of kicking out its US customers.  Last April, it was unable to accept US dollars via wire transfers, seriously crimping it’s business to point where it sued Wells-Fargo bank.

Why is Bitfinex slowly but surely rising up on the list of the SEC’s naughty-list? Probably because it among the industry leaders in issuing tokens and digital coins, such as Tether, the digital coin.

You can bet the SEC, the Treasury Department and the security guard at Fort Knox all took a hard look at Tether when it first came out, with promises of a “1 to 1” backing of digital currency with its fiat partner, the US dollar.

The concept of a tethered digital coin, that is to say a digital coin backed by a tangible commodity or security or a real fiat currency (money issued by a national government) is a revolution in itself. But Quis custodiet ipsos custodes?, who watches the watchman?  Where are the dollar reserves for “Tether” stored? How do you redeem a Tether for a real American dollar? What happens if there is “run” on Tether? Is that even possible?

The last news article is the probably the one least-noticed but it may have the largest ramifications. While the SEC is letting the Initial Coin Offering mania continue (for now), it drew a clear line in the sand and kicked the companies with public listings out of the sandbox:

“The U.S. Securities and Exchange Commission (SEC) has suspended the trading of shares in an OTC-traded technology company over questions about the accuracy of a planned initial coin offering (ICO).

Issued August 9, the order was made against a firm called CIAO Group (now rebranded as NuMelo Technology), which trades on markets operated by OTC Markets Group. NuMelo first announced plans for an ICO on July 6, at the time indicating a desire to bring a “digital financial products marketplace” based on blockchain tech to the African market.”

It would easy to comment on this deal and write it off as a small OTC company looking to make a splash and trying to cash into the blockchain/ICO craze. But a second look shows they wanted to work with Hub Culture, a company with a fine pedigree and products introduced to the market back in 2007.

But full-stop by the SEC, and it’s impossible to know if they really didn’t like the specifics of the deal or if they are just not ready to even begin monitoring corporate entities that want to raise cash via securities on US public markets AND via digital coins on unregulated international exchanges.

Maybe if Goldman Sachs tries.  Then it could get interesting.

At present, the SEC and by extension, the entire regulatory financial framework of the US government has a near-impossible task: To understand the current digital financial revolution that is happening, right now, very quickly and everyhere.

True visionaries, swindlers, innovators and sharks are rubbing shoulders in the cryptocurrency world and nobody can figure out who is who with 100% accuracy.

In the end we will be all be decentralized. We will all be blockchain. But how we will get there without triggering another 2007 or 1929? Regulators, come and save us from ourselves.